Amended Banking Laws to allow multiple nominees for accounts, lockers

With the passage of the Banking Laws (Amendment) Bill, 2024 by the Lok Sabha on December 3, the rules governing nomination for bank deposits and lockers are set to change significantly, directly impacting account and locker holders. Given this context, bringing clarity on these proposed changes is essential for all stakeholders.

Nomination is a legal provision that enables deposit account holders (individuals or sole proprietors) or safe deposit locker holders to designate a nominee who can claim the proceeds of deposit accounts or the contents of safe deposit lockers after the original holders die.

Current System
The Reserve Bank of India mandates that account holders designate a nominee to receive funds from individually or jointly opened bank accounts, including fixed deposits. For jointly held accounts, the nomination takes effect only after all account holders have passed away. Nomination can be waived only if the account holder explicitly declares in writing that no nominee is required.

Similarly, nominations are permitted for bank lockers. Up to two individuals can be nominated for lockers which are jointly operated. Once the money or valuables in an account or locker are transferred to the nominee following the prescribed procedures after the account or locker holder's demise, the bank's legal responsibility ends.

The nominee acts as a trustee and is obligated to distribute the assets among the legal heirs as specified in a legal will or under the succession act. For accounts without registered nominees, up to ₹1 lakh can be released upon submission of a signed application by the legal heirs. A succession certificate is required for amounts exceeding this limit. Nomination is also mandatory for accounts held by firms with a sole proprietor.

New law on nomination
One of the key features of the proposed amendment is its replacement of the current single-nominee system for bank accounts and fixed deposits, allowing depositors to designate up to four nominees. It also permits nominations to be structured either successively or simultaneously, with the sequence of nominees, such as "one after the other," pre-determined.

For successive nominations, priority will be given to the nominee listed higher in the order. When multiple nominees are designated simultaneously, the nomination will apply in a predetermined proportion, which the account holder can specify. This ensures clarity on the share of funds each nominee is entitled to receive.

Account holders have the flexibility to choose from these nomination systems. For lockers, multiple nominees can also be assigned, following a sequential `one after another' arrangement.

Other conditions to remain unchanged
Although the number and order of nominees will change, other stipulations regarding nomination will remain the same. All account holders must decide on nominees collectively. If a minor is designated as a nominee, a legally eligible adult must be appointed to act on the minor's behalf.

For accounts opened by minors, the nominee must be someone legally qualified to act in the minor's interest. Account holders retain the right to cancel or modify the nomination at any time.

Banks are obligated to provide written confirmation of the nomination registered for each account. Upon request from the account holder, banks must also record nomination details in passbooks or deposit receipts.

While a nomination is mandatory for opening each account, the original nomination will remain valid for renewed deposits unless the account holder makes changes.

The new rules aim to curb the growing number of bank deposits trapped in procedural complexities or left unclaimed due to the absence of account holders.